Making and receiving offers

There are two ways to look at a prospective house sale. The first is antagonistic. The buyer wants to pay the lowest possible price. The seller needs to get the most money they can from their sale. These two camps are in opposition, and if both bring this attitude to the negotiation, it can be very hard to satisfy both parties. The other perspective is collaborative. The buyer wants to buy, the seller wants to sell, and both sides are looking to achieve the same objective. Adopting this attitude will make things much easier to resolve. Both perspectives are, in some sense, true, but the first way can lead to intractable problems and stubborn negotiating that gets in the way of agreeing a sale. A constructive approach offers a ‘win-win’ solution, where everyone is happy with the deal.

The buyer’s perspective

Before making an offer, know exactly what you can afford. If you need a mortgage, speak to an Independent Financial Advisor (IFA) and get a Mortgage Approval in Principle (AIP). This will let you know how much you can borrow, and how much you can expect pay back each month. If you are a cash buyer, or are getting your money from other sources, you need to do the same calculations to truly know your financial position.

Remember – buying a house is only a means to an end. For most people, the aim is to build a new life in a new home. If you find the right house, focus more on the outcome and less on the negotiation itself. Of course you want the best deal, for less money. It’s natural to offer low, and to do your utmost not to pay more than you have to. But it’s hard to weigh the value of finding the right place. If you buy with a mortgage, you only need a little extra cash to make a much better offer. For example, if you are borrowing 80% of the purchase price, £5000 more will only cost £1000 in cash, plus a little extra each month. Some buyers get so caught up in ‘doing the deal’ that they lose sight of how little it will actually cost to improve an offer. Concentrate on what you are trying to achieve in the long run, rather than worrying about ‘winning’ the negotiation. If you find the home you want at an affordable price, you are already a winner.

For investment buyers, it’s almost the exact opposite. You should only be looking at the numbers. An investment property is a business, and you should try to dismiss the emotional appeal of a particular house. There, it comes down to the maths of whether you will attract tenants, and whether the rent will cover the cost. Even so, being direct and honest about your position, rather than trying to haggle, will give you a much better chance of achieving your goals. Investment buyers, though, should be willing to walk away if the numbers don’t work.

The Seller’s Perspective

Constantly ask yourself ‘what is it you are trying to achieve?’ If you are buying a new home with the proceeds from the sale, you should have a good idea of how much money you need to make. If you receive an offer which is too low, perhaps you can make a lower offer on the home you need. If there’s a chain, it’s easier to ask five people to take £2,000 less than for you to accept £10,000 below your price. A good estate agent can help a lot in these cases. If you want a quick sale for personal or practical reasons, it can be better to accept a reliable buyer at a lower price, than to hold on in hope of something higher that may never come. Knowing your own priorities will help guide you towards the best decision.

Naturally you want the best price. The Estate Agent is working for you, not for the buyer, and although agents want a sale, their advice on the state of the market and the quality of the offer should be taken very seriously. If you are holding out for more, it’s useful to have something in reserve. Including furnishings in the price can give the buyer the justification for a higher offer. Buyers want a deal, too, so have something extra to give in order to get what you need.

It can be good to be flexible or creative. A buyer may be able to afford a larger mortgage but may not have ready cash available. If your home is just over a stamp duty threshold, perhaps you can offer to pay the duty, so that the buyer can offer more for your home but has less cash to pay up-front. Maybe you can offer to pay the removal costs out of the sale price. In both cases, the buyer can use the money saved to add to a deposit, allowing them to borrow more for a higher purchase price. If it costs you £5,000 in stamp duty to get £10,000 more for your home, you have clearly done well out of the deal!

Unproceedable offers

This is when a potential buyer makes an offer, but can’t go ahead with a sale until they have a buyer. Sometimes, the obstacle can be a link much further up the chain. They are hard to evaluate: on one hand, it’s great to have a potential buyer lined up, but on the other you might be waiting for months before everything comes together. If you receive an unproceedable offer, you may be willing to accept the price, but it is usually a good idea to leave your home on the market. The estate agent of the person who has made the offer has almost certainly told them it will be easy to find a buyer. It may be true, but be sceptical to guard your own best interests, and ask your own estate agent for their opinion. At very least, suspend marketing only to a deadline to give your prospective buyer some time to complete the chain.

If you want to buy a home but haven’t yet found a buyer, it’s still worth making an offer. First, you will have some idea of whether your chosen home is affordable. Second, you virtually guarantee that the estate agent will keep you informed of any other offers or developments. Most important, you have a real idea of how much you need to get for your own home. If your unproceedable offer is accepted, you may be able to take less for your own home to complete the chain. But be quick – even if you have your heart set on a home, you can’t expect the seller to wait forever.

A last word on negotiation

For both sides, remember that negotiation is only the means by which you both arrive at an agreement that suits everyone. The more honest and collaborative the process, the less likely it is to break down later on. You both win, or you both lose – very rarely is this not true. Be honest with yourself, and know your own mind and financial position. Be prepared to compromise or to walk away. It’s easy to get caught up in the detail, but is it really sensible for a deal worth hundreds of thousands of pounds to fall apart over a couple of hundred quid? From the minute an offer is made, both buyer and seller want the same result – ‘sale agreed’!